So What Club

Sourcing, trade and supply risk

Should the appliance maker add a second compressor supplier?

The prompt

The appliance maker buys 240,000 compressors a year from one supplier at INR 4,000 each. A second supplier would take 30 percent of the volume at INR 4,200 each. Qualifying (approving) and managing it costs INR 0.6 crore a year. The team estimates a 10 percent chance each year that the main supplier stops for two months. Each lost washing machine costs INR 5,000 of contribution. The plant makes 20,000 machines a month. With a second supplier, half of the lost output could be saved. The main supplier has also offered a 2 percent price cut on its remaining volume if a second supplier is added. Is dual sourcing worth it?

Before you reveal anything, plan your own structure and first move on paper. Then reveal one part at a time and compare.

Clarifying questions, with the interviewer's answers

Next case

Read the next worked case the same way: plan your own answer first, then reveal one part at a time.

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